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 Wills and ProbateIf I have a will, can I avoid probate? Many people incorrectly assume that if they have a will, they will avoid probate. Just the opposite is true. Wills guarantee probate. If you die owning assets in your own name, your will must be probated in order to convey good legal title of your assets to your beneficiaries named in your will. Consider your house. If you die and your house is in your name alone, how are your heirs going to be able to do anything with the house? It still has your name on it. Your heirs can't sell it, mortgage it, use it as collateral, etc. Your will must go through probate in order for the probate court to change the title on all your assets, including your house, into the names of your beneficiaries. Only then will your heirs be able to take control of your assets and do what they please with them. Does a will avoid or minimize federal estate taxes? Sometimes. If you have a complex will which has trusts written into it, federal estate taxes can be minimized or avoided. However, even complex wills must go through probate, and they provide no protection from disability. Unfortunately, most wills are simple wills which pass the entire estate from one spouse to the other and then onto the children. Under such an arrangement, there is absolutely no protection from federal estate taxes. Can I avoid Living Probate with a "durable power of attorney"? A power of attorney is a document in which the "principal" (the person giving the power) gives his or her "agent" (the person who is receiving the power from the principal) the power and authority to conduct financial affairs on behalf of and for the principal. A traditional general power of attorney will not allow you to avoid a Living Probate if you become mentally incompetent, because the agent's power under the power of attorney ceases upon the disability of the principal. A durable power of attorney, on the other hand, survives the disability of the principal and permits the agent to act on behalf of the principal even though the principal is disabled, thus avoiding a Living Probate. However, many financial institutions and other third parties refuse to honor durable powers of attorney, thereby rendering them ineffective for avoiding a Living Probate. Many third parties will challenge the wording in a durable power of attorney, contend that the document is not current, or refuse to honor any durable power that is not prepared using their preapproved language. It is for these reasons that relying solely on a general durable power of attorney to avoid Living Probate is risky. A far better alternative to relying on a general durable power of attorney to avoid Living Probate is using a Revocable Living Trust. Third parties who are reluctant to deal with an agent under a power of attorney feel more comfortable transacting business with a trustee of a Living Trust. Additionally, a Living Trust contains specific instructions as to how the maker wants his or her assets used and managed, whereas virtually all powers of attorney are devoid of these crucial instructions. A durable power of attorney ceases upon the death of its principal, and thus the assets of the principal are subject to the Death Probate process. A Living Trust provides for the management and distribution of your assets even after death and entirely avoids Death Probate. What is a "Death Probate"? A Death Probate is a legal proceeding ultimately controlled by the probate court. Probate procedures vary among the states. Some are more complex than others. Some states allow informal as well as formal proceedings. Despite these differences, the probate process consists of many steps and procedures that remain a mystery to most people. For the most part, a Death Probate and the administration of an estate are comprised of six basic tasks:
The average length of probate is between 1 and 2 years, although even the probate for a small, uncomplicated estate sometimes lasts several years. The probate process is also a matter of public record. Any person can access a decedent's probate file and discover personal estate planning and financial information about the deceased person and his or her family. If the decedent owned real estate in other states, the family must initiate a probate proceeding in each one of those states thereby increasing the time and the cost of settling the estate. What is a "Living Probate"? A Living Probate, sometimes referred to as a "conservatorship" or "guardianship," is a proceeding in the probate court designed to protect you in the event you become mentally disabled and unable to effectively manage your financial affairs. Because you are no longer able to sign your name or transact business, the probate court has to appoint someone to manage and assume your financial affairs for you. You may become mentally disabled due to a stroke, or a disease such as Alzheimer's, Parkinson's, or Huntington's. You can become mentally disabled as a result of a debilitating automobile accident as well. A Living Probate can be very expensive and time-consuming. If you become mentally disabled, your family must, in most cases, hire an attorney to prepare the necessary documents that the court requires and to make court appearances. The attorney generally charges on an hourly basis for the time he or she expends on the case, including time spent in court, on the drafting of legal pleadings, in conferences, and on telephone calls. It may be necessary to hire an accountant to prepare all the documentation that the court requires to properly analyze your finances. The conservator must generally post a bond in order to qualify to serve. The monies needed to pay the bond premiums, court costs, and attorney fees come out of your estate. The conservator is required to report to the court through the attorney on an ongoing basis and present detailed reports concerning the finances of the estate. Often the judge's consent is required via a court hearing prior to expending funds or transacting certain business on your behalf. A Living Probate is public; without special court dispensation, all the financial, medical, and legal records are often available to the public. If a court hearing or hearings are necessary, they are open to the public. Because of the publicity surrounding a Living Probate, many think that the process is a humiliating, dehumanizing proceeding. What types of property pass outside the probate process? Examples include insurance policies, funds in 401(k) plans, individual retirement accounts, other types of pension plans, annuities, property held in joint tenancy, property held in certain trusts, and property held as tenants by the entirety. Any type of insurance, pension plan, or annuity that is paid directly to the estate of the deceased will pass through the probate process. Hence, it is important that all these assets do not name the owner's estate as a beneficiary. Which assets of an estate pass through the probate process? Every asset owned outright by a decedent passes through probate. This property includes savings accounts, stocks, bonds, cash, personal property, real estate, and all other types of property held in the name of the decedent alone. |
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| ©2010, Dallas W. Jolley, Attorney & Counselor at Law. Send questions or comments to info@jolleylaw.com. | |||||
